Informal Labor Incentives and Firm Performance: A Case Study of RMG Industry in Bangladesh

Abstract

Many organizations implement labor incentive programs as they are considered to be drivers of employee motivation, leading to higher labor productivity. In this regards, the notion of low cost is a widely accepted business strategy in securing a competitive edge in the international market and, thus, achieving better firm performance. In Bangladesh, the readymade garment (RMG) industry extensively uses labor-intensive technology for its production, owing to the country’s labor abundance. However, anecdotal evidence suggests that some Bangladeshi RMG factories have been continuously registering higher export growth and better firm performance mainly due to their informal labor incentive programs. Given this focus, this study investigates the association between informal labor incentive programs and firm performance in the RMG industry in Bangladesh. Data for the study was obtained from 38 medium and large-scale RMG factories in Bangladesh between 2006 and 2012. Our finding suggests that informal incentives have a positive association with firm performance in Bangladesh’s RMG industry both in terms of production performance and net profit growth.
Key words: Readymade garments; RMG industry; Informal incentives; Labor productivity; Export performance; Bangladesh